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Economic Experts Weigh Bush’s Mortgage Rate Freeze Plan, Housing Crisis

President Bush announced a deal with mortgage lenders to freeze interest rates on some subprime mortgages due to move sharply higher soon that he hopes would slow the rate of home foreclosures. Economic analysts assess the value of the proposal and U.S. subprime troubles.

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    And we get two outside assessments of this plan and what other action should or should not be taken to deal with the subprime troubles.

    Michael Calhoun is the president of the Center for Responsible Lending, a homeowner and consumer advocacy group. And Andy Laperriere is a managing director of the International Strategy and Investment group, known as ISI. His firm does research for large investors, including hedge funds and pension funds.

    Welcome to both of you.

    Let's start with a response to this plan. I'll start with you, Michael Calhoun. Does it do enough, in your opinion?

    MICHAEL CALHOUN, President, Center for Responsible Lending: This plan will help in small ways, but does not at all take care of the crisis that we have now. It's a crisis not just for families who have subprime mortgages, but it is impacting in a big way all families who are homeowners and the economy as a whole. And if we want to get through this, this is a small step in the right direction, but much, much more is needed.


    We heard Secretary Paulson refer to 1.2 million, I think, people he thinks would be eligible for refinancing possibly. What are your numbers? What do you think would be the number of people qualifying for the freeze that he's talking about?


    We've looked at the numbers, and there are a lot of qualifications that you have to meet to be eligible for one of these continuations of your interest rate.

    Our numbers are much smaller, somewhere about 145,000 families is our estimate of who might benefit from this continuation of their existing mortgage rates, which are no bargain rates. Most of these rates are 8 to 9 percent. So it's not like these homeowners who continue at that rate are getting some discount mortgage rate.


    Andy Laperriere, a response to the plan, overall response?

  • ANDY LAPERRIERE, Managing Director, ISI:

    Well, I think that there's two things going on. First thing, I think mainly what Secretary Paulson talked about, which is you're trying to replicate what a case-by-case modification would produce, because the resources aren't there to do a case-by-case modification.

    But I think there's a concern, also, that there's some shifting of losses going on from homeowners to investors, and that's what investors on Wall Street are watching. Is this going to shift losses from homeowners to investors? And I think there's a little bit of that going on in here, as well.


    How does this affect the equation of winners and losers, borrowers versus investors?


    Well, I think the concern that investors are going to have looking at it closely is that there are people who are going to qualify for these loans that aren't very good candidates for loan modification in the absence of these standards, that they may have very high debt-to-incomes. There may be a big risk to default eventually. And the longer that it takes to go into foreclosure, the greater the losses will be for those investors.